Tax reform could be too big for super committee

@CNNMoney September 8, 2011: 5:30 AM ET
Is national tax reform too big for debt super committee?

NEW YORK (CNNMoney) -- Everyone agrees -- fixing the tax code is imperative.

Many believe a simpler, smarter tax code can help reduce the country's debt burden by generating a more competitive economy and by raising more revenue through lower tax rates and a broader base of what's taxed.

What's more, many say it's hard to address all the problems facing the entitlement programs without tax reform.

So it stands to reason that the 12-member bipartisan debt super committee -- set to hold its first meeting Thursday -- would include tax reform in its proposals to Congress.

But it's hardly a sure bet that the panel will do so because of practical and political obstacles standing in the way. Those obstacles aren't necessarily insurmountable, fiscal experts say, but they will almost certainly preclude a fully baked tax reform plan coming out of the super committee process.

Time is not on their side: The members of the super committee have all of 11 weeks to produce a plan to cut deficits by at least $1.2 trillion over the next decade. Their proposals are due to the House and Senate on Nov. 23.

And unlike President Obama's bipartisan fiscal commission -- which worked in earnest for at least six months -- the super committee can't just turn out a well-written report. It has to write real legislation. (How Obama's commission would reform the tax code)

Even when not pressed for time, drafting a bill to transition from the current tax code to a new one is "a difficult thing to do," said Alex Brill, a research fellow at the American Enterprise Institute who advised Obama's fiscal commission, at a Business Roundtable event this week.

Partisan divisions won't dissolve: Even if all 12 members of the super committee were willing to put ideology aside, their success as a group will depend on whether they can sell their plan to a majority of their colleagues in the House and Senate.

There is reason to be skeptical that a) the negotiators will actually break their partisan molds; and b) if they do, that their plan will fly with a majority of lawmakers.

National debt: The 5-minute primer

"There is a core disagreement over the level of taxation as a proxy for the size of government," said Clint Stretch, managing principal of federal tax policy at Deloitte Tax.

Generally speaking Republicans don't want government to live on revenue of more than 18% of GDP, while Democrats would prefer something closer to 21%. That's a difference of about $4 trillion over a decade, Stretch said.

Meanwhile, many Democrats have said they won't discuss entitlement reform unless Republicans show a willingness to raise more revenue.

Already one super committee member -- Republican Sen. Jon Kyl -- has said he will propose that the committee table tax reform and major entitlement reform, according to a National Journal report.

"I am going to suggest to my colleagues that we should first focus on areas where we can reach agreement. Because if we start asking each other to make a big compromise on principle, that is hard to do," Kyl said.

Turf troubles may be an issue: Writing tax law is the domain of the Senate Finance and House Ways and Means committees.

The chairmen of those committees -- Democratic Sen. Max Baucus and Republican Congressman Dave Camp -- are on the super committee. But it's not clear whether they will cede their authority to a small group of lawmakers.

Of course the same may be said of any recommendations the committee might make for Social Security and Medicare, both of which also fall under the jurisdiction of the Finance and Ways and Means committees.

Both Baucus and Camp also sat on Obama's fiscal commission. And both men were part of the minority in that group who voted against the commissions' proposals. Among their objections: Baucus didn't like some of the ways that the group dealt with entitlement reform and Camp didn't like some of the ways it deal with tax reform.

Still, there's some potential for tax reform: In the little time they have, the committee members may well recommend that some tax breaks be curtailed, said budget expert Alice Rivlin and William Hoagland, a former Senate Budget staff director. Both spoke at the Business Roundtable event.

Killing off a few tax breaks, however, isn't reform. But the super committee could advance the cause by issuing "super" rules, Hoagland and Rivlin said. Such rules would require Congress to reform the tax code by a specific date in the future -- and in a way that's free of the usual procedural hurdles.

"They need to go to a two-stage process," Rivlin said.  To top of page

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